A while back I wrote, The Middle East will have to find
ways to protect future oil revenues. It appears that they have. Despite the falling price of crude from $100 a barrel to $80 a barrel and now to $75 a barrel, Saudi Arabia is maintaining production and other oil producing nations seem to be in sync.
Remember, I said protecting revenues. Not prices, not profits—revenues.
Falling oil prices, Middle East supply and a slugging global economy are bad news for U.S. Oil Company revenue.
Remember the basic business paradigm: increased revenue and a rising demand curve ultimately effectuate a rise in capital investment and operations spending: buy more equipment, drill for more oil. (And now, natural gas.)
However, spending money to increase supply is valid only if there is a demand curve growth and a reasonable expectation of increasing r.o.i.
However, he
oil producing nations are maintaining output to maintain market
share. Add to this that sluggish global economy; US production increases,
and competition, and we have analysts predicting energy stocks will fall along with profits. In addition, advances in alternative energy may further impinge on market share and influence future R&D--both the activity and the strategy & planning aspects.
Nothing succeeds like success.
Success Breeds Success
We're on a roll
And the momentum becomes the movement creating a shirt in the paradigm.
Fossil fuels will be around for the foreseeable future...an maybe a bit more. However, the fossil fuel industry may need a new business model. A Plan B to adapt to that shift in the Global Paradigm.
Now, up front, I am a firm believer in solar power. I did a report on it for science class in the 6th grade--50 years ago almost to the day. I was11 years old.
Further, I believe that there is nothing dirtier and more dangerous than nuclear power.
If you have an oil spill, you can use a bottle of Dawn® to clean a greasy duck. If you have a radiation leak, you have dead duck. And new and improving technology will make it easier and more effective to deal with oil spills. Radiation leak? Not so much.
However, we are talking about a shift in the Global Paradigm. Hence: the SWOT Test.
Strengths:
The global economy is heavily reliant and dependent on fossil fuels.
Oil has a large capital investment infrastructure.
Oil has experience and expertise.
Weaknesses:
Fluctuating supply and demand
The global Market structure leaves P&L subject to foreign competition and political ans well as economic vacillations.
Greater production means lower prices, hence lower revenues, and lower investment.
.
Higher prices move the market to alternative sources.
Propensity of other countries to develop their own energy assets.
Opportunities:
There is a growing need for, hence, a growing demand for petroleum by-products.
Investment opportunities in renewables and alternative energy sources.
A growing global population and the attendant increase in energy needs and petroleum by-products.
Funds to invest in alternative energy and renewable
Threats:
Accelerated demand for and opportunities in technology, in renewables, and in alternative energy sources.
Competitor investments in same.
Other nations are less dependent on high oil prices and revenues.
Propensity for other regions and nations to develop their own oil reserves.
It may seem to be counter intuitive to suggest investing in your own competition. However, if you look at developing oil reserves elsewhere and alternatives, Big Oil can see the analogy when I admonish big oil to being investing more heavily in alternative energy.
And there is this to consider: though fossil fuels will be around for a
long time, perhaps, even a bit longer, very soon, gasoline (petrol) may
become a by-product of the petroleum by-product industry.
I’ve written a few articles to help round out the discussion.
Plastics
Memo to Big Oil:
Nuclear Power has lost its luster but not its glow.
Warmest regards,
Slim
slimfairview@yahoo.com
Copyright © 2014 Bob Asken as Slim Fairview
All rights reserved.
